Money to burn: shoppers, not the state, will lead our recovery

Compared with the United States, the UK has so far been relatively cautious about launching stimulus programmes to kick-start the economy. And yet perhaps it doesn’t need to. People are paying off their credit cards, putting some money into the stock market, buying new houses, as well as finally booking a restaurant and getting back to the shops. A lot of money is about to be unleashed on the economy, even if this stimulus is largely invisible now. The interesting question is this: where will all the money go, and which sectors will be the big winners?

It may at times seem as if Rishi Sunak is spending like crazy. By global standards, however, he is far from exceptional. In the US, President Joe Biden’s relaunch of the American economy will take the total stimulus to more than 25 per cent of GDP, while ours is a more modest 15 per cent.

Britain has spent plenty, of course, with the furlough scheme, soft loans for business and a vast increase in health spending. Nonetheless, extra demand does not just come from the state. It can also come from individuals. A total of £150 billion in ‘excess savings’ has been built up over the past year according to research from Pantheon Macroeconomics. That is the equivalent of 7 per cent of GDP.

We all know where it has come from. We have been locked down for much of the past 12 months. Our incomes, whether from working from home for our employer or from furlough payments, have not been very much affected (except for the shamefully excluded self-employed, that is). But we haven’t been able to go to the pub or eat out in a restaurant or spend a weekend in Prague or, come to think of it, do anything very much apart from take a walk and bake some sourdough bread.